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There May Be Reason For Hope In Holmes Place International's (TLV:HLMS) Disappointing Earnings

Simply Wall St · 2d ago

The most recent earnings report from Holmes Place International Ltd (TLV:HLMS) was disappointing for shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

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earnings-and-revenue-history
TASE:HLMS Earnings and Revenue History December 7th 2025

A Closer Look At Holmes Place International's Earnings

In high finance, the key ratio used to measure how well a company converts reported profits into free cash flow (FCF) is the accrual ratio (from cashflow). To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth.

Over the twelve months to September 2025, Holmes Place International recorded an accrual ratio of -0.28. That implies it has very good cash conversion, and that its earnings in the last year actually significantly understate its free cash flow. Indeed, in the last twelve months it reported free cash flow of ₪90m, well over the ₪30.7m it reported in profit. Holmes Place International did see its free cash flow drop year on year, which is less than ideal, like a Simpson's episode without Groundskeeper Willie. Unfortunately for shareholders, the company has also been issuing new shares, diluting their share of future earnings.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Holmes Place International.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Holmes Place International expanded the number of shares on issue by 11% over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Holmes Place International's historical EPS growth by clicking on this link.

A Look At The Impact Of Holmes Place International's Dilution On Its Earnings Per Share (EPS)

Holmes Place International has improved its profit over the last three years, with an annualized gain of 6.8% in that time. Net income was down 33% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 32%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Holmes Place International's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Holmes Place International's Profit Performance

In conclusion, Holmes Place International has a strong cashflow relative to earnings, which indicates good quality earnings, but the dilution means its earnings per share are dropping faster than its profit. Considering all the aforementioned, we'd venture that Holmes Place International's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. So while earnings quality is important, it's equally important to consider the risks facing Holmes Place International at this point in time. Case in point: We've spotted 2 warning signs for Holmes Place International you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.